Audit Sampling Flashcards
What is the testing of less than 100% of the items within an account balance or class of transactions in order to evaluate some characteristic of the balance or class?
Audit sampling
What 2 things must the samples be?
Unrestricted and randomly selected
What is the measure of “variability” which refers to the range of values within the population?
Standard deviation
What is the risk that the sample is not representative of the population and that the auditor’s conclusion will be different from the conclusion had the auditor examined 100% of the population?
Sampling risk
What are the 2 methods of audit sampling?
Statistical or Nonstatistical
What type of sampling is evaluated quantitatively?
Statistical sampling
What type of sampling is evaluated judgmentally?
Nonstatistical sampling
Does statistical sampling eliminate the needs for auditing judgment?
No
What gives all items in the population an equal chance to be included in the sample to be audited?
Random sample selection
What are the 2 types of sampling?
Attribute and variable
What type of sampling is used for testing internal controls?
Attribute sampling
What type of sampling is used for substantive testing of account balances?
Variables sampling
What is the uncertainty inherent in applying audit procedures?
Audit risk
Audit risk includes?
Uncertainties due to sampling and other factors
What type of risk is a chance the sample is “wrong”
Sampling risk
In performing substantive tests of details, the auditor is concerned with two aspects of sampling risk?
Risk of incorrect acceptance and incorrect rejection
What is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when in fact it is materially misstated? Is it ineffective or inefficient?
Risk of incorrect acceptance; Ineffective
What is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when in fact it is not materially misstated? Is it ineffective or inefficient?
Risk of incorrect rejection; Inefficient
What type of risk is risk of incorrect acceptance?
Beta risk
What type of risk is incorrect rejection?
Alpha risk
In performing tests of controls, the auditor is also concerned with two aspects of sampling risk?
Risk of assessing control risk too low and too high
What is the risk that the assessed level of control risk is less than the true risk based on the actual operating effectiveness of the control? Is it ineffective or inefficient? What type of risk is it?
Risk of assessing control risk too low; Ineffective; Beta risk
What is the risk that the assessed level of control risk based on the sample is greater than the true risk based on the actual operating effectiveness of the control? Is it ineffective or inefficient? What type of risk is it?
Risk of assessing control risk too high; Inefficient; Alpha risk
When planning a particular audit sample for tests of controls, the auditor applies professional judgment in considering?
Objective, tolerable deviaiton rate, auditor’s allowable risk of assessing control risk too low, and characteristics of the population
How do you calculate the upper deviation rate?
Sample deviation rate plus allowance for sampling risk
Does an auditor rely on the control if UDR <= TDR?
Yes
Does an auditor rely on the control if UDR > TDR
No
What type of sampling is used for detecting fraud or other critical items?
Discovery sampling
What technique is used when a population has highly variable recorded amounts?
Stratification
What are the 3 commonly used classical variables sampling plans?
Mean-per-unit, ratio, and difference
How to calculate mean-per-unit estimation?
Average value of item x number of items in population
How to calculate ratio estimation?
(Corrected value / book value) x total book value
How to calculate difference estimation?
(((Book value - corrected value) / number of sample) x population) - total book value
Sample size will increase if the following increase?
Expected misstatements, standard deviation, and assessed level of risk
Sample size will decrease if the following increase?
Tolerable misstatement and acceptable level of risk
What is a disadvantage of PPS?
Zero, negative, and understated balances generally require special design considerations
How do you determine the sample size for PPS?
Tolerable misstatement / reliability factor = sampling interval then recorded amount of the population / sampling interval = Sample size
